establishes an unwarrantably arbitrary precedent, the least fault of which is that it conspicuously encourages abuses of Federal power in other directions.

It is to be conceded that there has been some measure of excuse for this long tolerance of a manifest public wrong. Much of the ante-war bank circulation was unsound in quality, liable to frequent default, subject to heavy discounts, and too often becoming almost worthless in the hands of the holders. On the contrary, the National bank notes have been entirely exempt from these faults; and the public, always too willing to sacrifice rights to convenience, have consequently been willing to allow the State banks to suffer a protracted penalty for their lax care for the credit of their notes. The experience of the last thirty years, the improvement in banking methods, the more educated intelligence of bank officers, and the more exacting demands of the public as to the quality of the circulating medium have changed all this, and “wildcat" currency is no longer a possibility.

RIGHTS AND DUTIES OF GOVERNMENT.

To reach a fair conclusion on this matter it must be, first of all, granted that this is an affair in which the Government has certain rights and obvious duties. It is a proper function of a government fashioned after even the most liberal ideals to see to it that the currency shall be a safe and convenient instrument for effecting the exchanges of the community. It is not safe, it is not good public policy, that paper circulation should be exposed to depreciation, nor to lack of facilities for its redemption, nor to redundancy or deficiency of supply. The notes go into all hands in all parts of the country, and where no estimates can be formed of the solvency of the issuers, they are to all intents and purposes a public instrument about which practically no inquiry as to merits can be made. The quality of this form of money is therefore a matter about which it is the imperative duty of the National Government to concern itself. This principle is fully recognized in the powers conferred by the Constitution upon the Federal Government for regulating the coinage and legal tender, and also consonant with the large discretionary power conferred by that charter for regulating commerce as between the States.

About the exercise of these powers by the central authority no serious question is likely to be raised, nor need it be in order to reach a just conclusion. But does it follow that the national authority, in exercising these large rights of regulation, is warranted in applying them through the undiscriminating enforcement of a prohibitory tax? As a rough and ready exercise of the war power it might be excused; but as a peace measure it is an inexcusably harsh, unjust and unintelligent method of employing the regulatory function. In the exercise of this power there should be a just discrimination between prohibition and regulation proper. All that can be expected from the Federal authority is that it see to it that the notes issued by the States are of proper quality. That is a duty required by the common safety and welfare, and one which the separate States cannot be solely left to enforce; but to unconditionally exclude the State issue of notes is an unwarrantable abuse of power and equally hostile to the public interest.

In brief, then, the office of Congress in this case is simply to see to it that the notes of the State banks are constituted a sound instrument of exchange, safely usable, when necessary, in any part of the country. To insure that object, all that is needful is to require, as a condition precedent to issuing such paper, that it shall be subject to guaranties identical with those suggested (at p. 7) for the National banks, namely:

(1) That the issues of banks doing business under its laws shall not exceed in amount 75 per cent. of their paid-up capital.

(2) That the notes of such banks shall constitute a first lien upon the whole assets of the bank and upon the duplicate liability of the stockholders.

(3) That a series of central agencies shall be established for the redemption of their notes.

(4) That these banks shall be subject to regular Federal examination; and

(5) That State banks conforming to these conditions shall be exempt from the 10 per cent. tax, while all banks issuing notes in non-compliance with these stipulations shall remain subject to a tax of 10 per cent. per annum on all such issues.

Under such conditions, the issues of the State banks would be identical with those suggested as for the National banks, and the Federal supervision over each class would be the same. The State Governments, however, would need to conform their banking laws to the new conditions; which would be readily done when non-compliance involved the exclusion of their banks from the privilege of issue.

The admission of the State banks to this privilege is more than a question of political equity—it is a condition absolutely essential to the success of the programme for retiring the legal tenders. On a previous page facts are stated which show that, supposing the process of retirement to occupy five years, the net increase of National bank currency available for replacing the greenbacks and Sherman notes could not, at the end of that period, be expected to exceed $275,000,000; which would leave $225,000,000 of circulation to come from some other source. The assertion will hardly be disputed that there is no such other source except in the State banks.

What amount could the State institution contribute toward this required $225,000,000 of notes? The capital of the banks at present organized under the State laws aggregates close upon $300,000,000. Assuming them to be allowed to issue circulation, it would, perhaps, not be an improbable supposition that, at the end of the five years allowed for the retirement of the legal tenders, their total capital might have risen, under the new inducements, to $350,000,000 or $400,000,000. Let the figure be taken at $360,000,000. Should they put out notes to the extent of 60 per cent. of capital, as above supposed in the case of the Nationals, they would then have outstanding at the end of the transition $216,000,000 of nctes, or $9,000,000 less than sufficient to compensate for the deficiency in the contribution from the National banks. It will thus be seen that the enfranchisement of the State institutions would make possible the complete abrogation of the legal-tender notes; while without that assistance their retirement is positively impossible, and it would be virtually reckless to undertake the change with any better expectation whatever. Conceptions of local interest, of banking prejudice or of sectional prestige may stand in the way of authorizing State issues; but all such objections must be surrendered if the nation is to be saved from the perils attending our legal-tender paper.

CURRENT REDEMPTION OF NOTES.

With a volume of $500,000,000 of bank currency, to be steadily increased with the growth of the country, arrangements for redemption of the notes must be provided very different from those existing under the National system.

It is to be conceded that the proposed enlargement of the freedom of issue might easily run into an excessive supply of circulation and an illegitimate expansion of bank credits. That possibility is so obvious that a measure which failed to provide protection against such a result would be radically defective, and, after brief trial, would bring upon itself the condemnation of the conservative sentiment of the country. The only safe means of preventing such a failure is to provide arrangements which would allow the utmost facilities of dispatch and economy for forwarding the notes for redemption. In devising such arrangements, it is important to keep in mind who are the parties to use them. The general public have little interest in redemptions; for they have no reason for desiring to change one form of money for another. The redemption agency is purely a banker's institution. The notes flow into the banks in the way of deposits, and it is to the interest of the bank receiving them to exchange them as soon as possible for "lawful money." In so doing, the bank makes so much more room for paying out its own notes, and at the same time strengthens its own lawful money reserves. There is a constant competition between the banks to occupy

the field of circulation, each one seeking to get out and keep out its own notes, and using the redemption agency as a means of pushing into retirement the issues of its competitors. This competition is the truest possible regulator of a banknote currency. It permits expansion of the volume when an increase is needed; it compels contraction when the outside volume is excessive. Under such a machinery there can be neither scarcity nor redundance. The regulating force is the self-interest of each bank checked by that of all others. If any bank is suspected of matters affecting its credit, that fact operates as a special inducement for sending its notes for redemption; and such discrimination puts its circulation under the severest regulation. It will thus be seen that the note clearing-house, or redemption agency, becomes the very salt and conservation of a banknote system, protecting the quality of the notes and assuring a healthy adjustment of their volume and of their geographical distribution.

The existing redemption agency, though situated at the National capital, is too distant from the points at which a large portion of the bank paper circulates to admit. of the notes being systematically sent to the Treasury for liquidation. Such redemptions as are made are, for the most part, due to the dilapidation of the notes rather than to their not being wanted for use. The consequence is that there is no proper elasticity in the volume of this form of circulation. It does not contract when there is more paper outstanding than is required; it cannot expand when more money is needed. Hence our bank circulation has lacked one of the most important qualities of a wellregulated circulating medium. The present redemption agency has been a lamentable failure from the beginning; nor is there any possibility of so modifying it as to make it perfectly effective. Its redemptions proper, excluding those connected with failed banks, with withdrawals of circulation and with current notes now amount to less than $40,000,000 a year for the whole United States, or one-fifth of the total circulation. What this amounts to, as compared with what is needed under a really healthy and competitive note system, may be inferred from the fact that in the year 1857 the Suffolk Bank of Boston, acting as redemption agent for the New England banks, effected $400,000,000 of redemptions; in other words, New England, with its restricted financial dimensions of thirty-seven years ago, had tenfold the amount of redemptions effected at Washington in these days for the whole United States. That is the difference in results between an efficient and an inefficient redemption agency. The services of the Suffolk Bank were rendered at a cost of 10 cents per $1,000, while those of the National Banking Bureau cost 70 cents per $1,000.

With a view to keeping the agency near the point of issue, and thereby facilitating conversions, it is necessary that, in place of the Washington agency, the law shall establish say six redemption districts, and confer upon the Comptroller of the Currency authority to designate for each district some one bank, centrally situated in such area, which shall act as redeeming agent for all the banks in such district. Perhaps some such geographical determination of the respective districts as the following might be most equal and most convenient; the amounts of capital set opposite each division will indicate the present relative status of banking resource in each group of States.

Each of these divisions would include an amount of bank capital sufficient to warrant its having an agency of its own. Each of the agencies should be required to redeem not only notes issued within its district, but also any presented that may have been issued in some other district; the agency recouping itself by forwarding such notes to the agency for the district in which they were issued. Such extra-limit redemptions, however, would probably be found comparatively unimportant in volume.

THE VOLUME OF THE CURRENCY.

It is to be taken for granted that, in making such changes in the currency system as have been cursorily sketched in the foregoing suggestions, Congress would find itself compelled to respect the public feeling against any reduction of the total volume of money. Let us see, then, where the changes we have proposed would place us in that respect. The cancellation of the old legal tenders and the Sherman notes would obliterate about $500,000,000 of legal-tender paper; what would be the probable compensation for those withdrawals ?

First, there would be put into public use the $100,000,000, more or less, of gold coin now held as a dead reserve by the Treasury-a large portion of which would go into the bank reserves, to compensate for the abstraction of a corresponding amount of legal tenders. Next, as shown at pages 194 and 196, there would be a net addition to the National bank circulation of $275,000,000. And, as shown at page 199, about $215,000,000 would probably accrue from the authorization of issues by the State banks. The result may be thus summarized:

The provision would thus exceed the requirements of the case by $70,000,000. Allowing for the possibility that a considerable amount of greenbacks would be found to have been lost or destroyed, the excess might prove to be still larger. This surplus is fortunate, for the reason that our calculation upon the banks putting out notes to 60 per cent. of their capital might be found, in practice, to be a too liberal allowance. It is, however, desirable that the change be unattended by any inflation of the currency; and to prevent that the Secretary of the Treasury might be authorized to order a temporary suspension of new issues of bank notes, in the event of their volume expanding at a rate exceeding the concurrent retirement of legal tenders.

THE SILVER FACTOR.

The treatment of the silver factor in currency reform may, perhaps, be most wisely regulated, for the present, upon tentative considerations of expediency. Two conditions, however, should be absolutely insisted upon : first, that no further additions be made to our silver currency in any form; and next, that the new issues of bank notes, whether National or State, shall be payable in gold alone, that being, under existing conditions, the only metal that can be considered permanently stable. When the Government demand notes are out of the way, any serious liability to a suspension of gold payments-by the Treasury at least-will have been removed. Our silver currency, though in every sense unsound and fundamentally dishonest, may yet be kept current at par so long as we have behind it $650,000,000 of gold; and its ultimate fate and disposal may, with reasonable safety, be left for treatment when the various influences tending to its discredit and disuse have worked out their natural effects.

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SUMMARY OF FOREGOING PROPOSALS.

I.-Authorize the redemption and cancellation of all outstanding United States notes and Treasury notes of July 14, 1890.

(a) Said redemptions shall not at any time exceed in amount the issues of bank notes provided for, under Section III.

(b) To provide the means for these redemptions, the Secretary of the Treasury shall be required (1) To use at his discretion the fund in the Treasury known as the "gold reserve; (2) To sell, at his discretion, from time to time, the silver in the United States Treasury acquired by purchases under the Act of July 14, 1890; (3) To use for this purpose all income devotable to the debt Sinking Fund and all revenue not otherwise appropriated; (4) For the same exclusive purpose, a duty of 2 cents per pound on coffee and 4 cents per pound on tea shall be paid on imports of those articles, until nine-tenths of the aforesaid notes shall be declared redeemed by the Secretary of the Treasury, when such duties shall cease; and (5) The Secretary of the Treasury shall be authorized to borrow, for the aforementioned purpose, on bonds payable after six years from date of issue at the pleasure of the Government, and at a rate of interest not exceeding 3 per cent., such amount as may be found necessary in addition to the proceeds from the other sources herein before enumerated.

(c) To prevent impairment of National bank reserves, pending the retirement of the legal tender notes, the National banks shall be permitted to hold onehalf of said reserves in the form of the aforesaid bonds, in lieu of an equal amount of gold; that privilege to cease at six years from the date of authorizing act.

II. From and after six months following date of act, the Treasury shall not reissue any notes authorized under the Legal Tender Acts and the Act of July 14, 1890.

III.—After the date of act, any incorporated bank within the United States, having a paid-up and unimpaired capital of not less than $25,000, shall be permitted to issue circulating notes to an amount at no time exceeding 75 per cent. of said paid-up and unimpaired capital, upon the conditions following:

(1) That such notes shall constitute a first lien upon the entire assets of the bank and a claim upon the stockholders to the full amount of their ownership of stock.

(2) That each issuing bank shall pay a tax of 1⁄2 of 1 per cent, per annum on its average circulation, to defray the expenses of the administration of this law and of printing the notes.

(3) That no banks shall issue said notes until the Secretary of the Treasury and the Comptroller of the Currency are satisfied that the bank applying for this franchise has entirely complied with the herein specified conditions.

(4) That the Comptroller of the Currency shall be required to call for quarterly statements from issuing banks of such items as he may deem necessary to show whether they have continuously complied with all the provisions of law affecting note issues.

(5) That, if any issuing bank should fail to comply with these conditions, the Comptroller of the Currency may, at his discretion, require such bank to call in its notes and cease issuing, until said conditions have been fully obeyed.

(6) That, immediately upon the failure of a bank, the Comptroller of the Currency shall, if the bank be organized under the National system, cause the note obligations to be paid first and with all promptness; and, if it be organized under a State law, shall appoint an administrator in the sole interest of the noteholders, to whom shall be payable, out of assets and shareholders' liability, an